A debt relief company that misled consumers and charged illegal advance fees will be banned from those practices under a settlement with the Federal Trade Commission.
United Debt Counselors exaggerated how much money people would save using its services, according to the FTC’s lawsuit. The company’s direct mail ads, sent to up to 100,000 consumers a week, looked like official documents from a bank or attorney, and claimed that customers would have their credit card debt cut in half and become debt-free within 36 months.
The defendants repeated similar claims on their website and by phone when consumers called after they received the mailings, the FTC said. They claimed a high success rate and said that consumers rarely dropped out of their program. The defendants also claimed they provided consumers with a special savings account that only consumers could control, but according to the FTC, the defendants took monthly fees out of the accounts.
The FTC alleged that consumers who wanted to buy the debt relief services were told they had to meet with an experienced sales representative, but instead the defendants sent notaries public, who had little information about the company, to show a sales video and witness contract signings. The defendants usually charged advance fees before they negotiated any savings on credit card debts. The advance fees violate federal law unless consumers first meet face-to-face with a knowledgeable sales representative who can describe the program and answer questions.
Less than half of consumers who bought the services finished the program, and even fewer were debt-free at the end of 36 months. according to the FTC.
The defendants are United Debt Counselors, David Melrose, Kirk Lanahan, and Corinne Maples.
The defendants are banned from making misrepresentations about debt relief and other financial products or services and making unproven claims about any products or services, under a court order. They can charge advance fees only if they comply with federal law, and sales persons making face-to-face sales presentations need to have authority to discuss terms, they must do so in detail, and they must be able to answer consumers’ questions.
The order imposes a $9 million judgment – the amount of alleged harm to consumers. It will be partially suspended on payment of $510,000.
For more information on debt relief, go to Debt Relief Services and the Telemarketing Sales Rule: A Guide for Business.